BUS 320 Lecture Notes - Lecture 28: Accrued Interest, Net Income, Book Value

• School: Simon Fraser University
• Department: Business Administration
• Course: BUS 320
• Professor: Mahmoudian Fereshteh

Document Summary

Motivation for investments includes: 1) obtaining short term returns or 2) long term returns depending on the corporate strategies. Includes investment in government debt, corporate bonds, convertible debt, and commercial papers: equity instruments. Ownership interest in companies (e. g. common stock, preferred stock) Method of accounting for a particular investment can depend on: Ability to reliably measure instrument"s fair value. 1. 2- investment in debt securities: amortized cost model. Derecognize investment and report a gain/loss on disposal in net income. Note: investment can be amortized at straight-line method or under effective interest rate method. Discount (or premium) is amortized from last date of amortization to the date of sale. New carrying amount calculated, which is the amortized cost balance plus the discount (or minus the premium) amortized from last date of amortization. Gain (or loss) calculated as the difference between selling price and carrying amount. Any accrued interest income is calculated (and received) over and above the selling price of the investment.